Golf Courses and Alternate Land Valuation Methods

How the Cost Approach Has Historically Been Used in Determining Tax Liability

A cost approach, when used by a Michigan tax assessor to determine the tax liability of a golf course begins with land value, adds the cost of improvements and subtracts depreciation. If we break that down and examine each of those component parts, it's easy to see why there is such a disparity between the value reflected by a particular course's assessment and its fair market value.

The first and most important component noted is land value. It's a given that land values in Michigan increased dramatically - well over double-digit percentages per year — throughout 2003, 2004, 2005 and into 2006 because of the housing and land real estate bubbles. Land speculation was rampant.

In many cases, whole golf courses were purchased by residential developers who simply plowed over the golf course to build subdivisions. The per-acre prices they were willing to pay were substantial.

Accompanying that was a tremendous increase in golf course development in Michigan during those years. Many of these developments included developing the golf courses and then constructing high priced residential units around it. Developers were willing to pay such high prices because they were able to get a return on their investment plus their profit from the sale of the housing units alone. Revenues from the golf course were often pure gravy.

With these huge land values in hand, the assessors then added the costs to construct the improvements and subtracted depreciation. The depreciation used, however, was limited to physical depreciation based primarily on the useful life of the clubhouse, for example. Land doesn't physically depreciate. Thus, there was no downward adjustment to the largest component of the overall value — the land.

A key component of depreciation is "external obsolescence," which results from outside forces such as the oversupply of courses and the dramatic decline in residential land values. Assessors seldom, if ever, make adjustments to compensate for that factor in their cost approach, thus resulting in inflated tax bills for golf course owners.

Why the Income Approach Should Now Be Used When Pursuing an Assessment or Property Tax Appeal

Golf course owners primarily value their properties based upon the income that they derive from golf course operations. This is the so-called "income approach" to value.

It was not unusual in 2004, 2005, and 2006 for a conclusion of value based on the income approach to support a claim for an appeal. However, appeals were largely unsuccessful during the boom years because land sales were so high that the highest and best use of the property was usually for single-family or multi-family residential development and not as a golf course.

Flash forward to January 1, 2010: Assessors no longer have such a tenable "highest and best use" argument. The crash in the residential real estate market and continued decline over the last three years has caused the value of vacant land to decrease anywhere from 20%-50% in most areas. Assessors have not come close to decreasing land values in a corresponding manner.

As your attorney I can help you use this approach successfully when pursuing a property tax appeal. In recent cases , I have used the income approach to substantially reduce tax assessments for numerous landowners.

Contact My Plymouth, Michigan Office

I am available to meet with you to discuss your property tax appeal needs Monday through Friday from 9-6. Evening and weekend times are available by appointment.

I offer a free initial consultation . Ninety-eight percent of my work is done on a contingent-fee basis. In such cases, you are only responsible for paying out-of-pocket costs for such things as filing fees. At the end of your case, my fee is one third of the amount of any taxes I saved for you.

Contact me at 734-335-1967 or online for more information or to schedule an appointment.

As a property tax appeals lawyer, I represent individuals and companies throughout State of Michigan, including but not limited to those located in the following cities and townships: Plymouth, Ann Arbor, Canton Township, Detroit, Flint, Grand Rapids, Livonia, Plymouth Township, Westland, Jackson, Traverse City, Lansing, and counties: Wayne County, Jackson County, Kalamazoo County, Livingston County, Macomb County, Monroe County, Oakland County and Washtenaw County.